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The Sherwin-Williams Company (SHW - Analyst Report) updated its earnings forecast for the first quarter of 2012. The company now expects earnings to be in the range of 92 cents to 95 cents per share, up from the previous expectation of 56 cents to 74 cents per share. In the first quarter of 2011, the company reported earnings of 63 cents per share.

Sherwin-Williams elevated its outlook on the basis of strong sales and increased prices and demand for its Paint Stores group. According to the company, the Paint Stores’ revenues rose by about 20% in the first quarter due to improved sales volumes for architectural paint and higher prices. 

The Paint Stores posted net sales of $1.13 billion in the fourth quarter of 2011, representing a 13.5% increase form the year ago quarter. The segment’s profit, however, decreased to $133.4 million from $134.8 million in the prior year due to higher raw material costs and rise in selling, general, and administrative expenses, and increased asset impairment charges. The enhanced costs were partially offset by rising selling prices and higher paint sales volume.

Strong sales in the Paint Stores Group will place Sherwin-Williams in a better position. We further believe that the company will expand its footprint through meaningful acquisitions. However, raw material prices remain a concern.

The price of its key input titanium dioxide (TiO2) has been escalating and continues to be a headwind for the company. Furthermore, Sherwin Williams faces stiff competition from PPG Industries Inc. (PPG - Analyst Report).

We currently have a long-term Neutral recommendation on Sherwin-Williams. The stock maintains a Zacks #2 Rank, which translates into a short-term (1 to 3 months) Buy rating.

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